On the economic front, the commodity traders are under scrutiny for jacking up the prices of crude oil on pure speculation. Many agree that the degree to which the speculative trading took place nearly doubled the price per barrel since last year. Many economists have modestly set the price of oil at $65-$75 per barrel given the good old traditional supply and demand model, and that’s after accounting for the ever increasing demand for energy from the emerging markets in China and India. But in the futures market where many institutional fund managers with billions of investment dollars all chime in on the pure speculation for future price hike cash-outs, the demand suddenly climbs more than the market equilibrium and creates the current state of hierchies of speculation. This is also a subliminal “test” to see how much rational human beings are willing to pay for convenience. To some extent, we’ve slapped ourselves in the back of the hand. Instead of treating oil as luxury, we treat it as a necessity for everyday living. Instead of taking public transportation, we drive gas guzzling SUVs and trucks, stuck in traffic without being qualified for HOV. The environmental policies prohibiting drilling within the states also reduce the supply of oil in such a tight market that is sensitive to the slightest change in supply or demand. Take the attack by rebel groups on the Nigerian off-shore oil drill for example, the crude oil per barrel jumped on the news. When the Chinese government announced the 18% increase in gas prices, the price per barrel dropped five dollars in premarket. The new mortgage bill that is suppose to provide $300 billion is foreclosure prevention is encouraging even more moral hazard in the financial market, for both the irresponsible banks and some greedy individual property investors. These are the people who took on risks as much as 20 times its books. The $300 billion will come from more taxes, which will only contribute to an even more vicious cycle of downfall. As for the recent boost in oil prices that benefited the Arab countries, the situation also presents a dilemma. Although some experts estimate that the some UAE countries have as much as $1.5 trillion in foreign reserve built up from oil, there are just as many problems to deal with. Saudi Arabia still has a 30% unemployment rate, in which only 1% of the population is directly affected by the oil business. Since much of the land in the UAE is deserts, water becomes a scarce resource to be imported for drinking and irrigation. Given the lack of arable land, UAE members have signed contracts in other third world countries for farmland rights to produce food and import them from countries such as Egypt, the Philippines and Cambodia, and other similar countries that can’t even feed themselves. By increasing the demand of food on the global market, food prices are tightened along with oil prices.
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